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A month ago, the National Stock Exchange (NSE) had announced that it would remove Tata Motors’ Differential Voting Rights (DVRs) shares from the benchmark Nifty index. Since then, the DVR has underperformed the ordinary shares by a huge margin of 730 basis points.

While shares of Tata Motors have gained 6 per cent, its DVR is down 1.4 per cent. The underperformance is likely to continue as the exclusion came into effect on Friday.

“The weakness in the scrip after the announcement was on account of speculative trading. Now that the actual exclusion has happened, there could outflows from exchange-traded funds (ETFs),” says a fund manager.

The Nifty is the index most mimicked by exchange-traded funds (ETFs). According to conservative estimates, passive funds with assets of over $10 billion ride on the Nifty. The Nifty and other indices periodically review their components based on criteria such as market capitalisation and impact costs.

Tata Motors’ DVR continues to be part of the BSE Sensex. Markets players don’t rule out an exclusion from the Sensex as well because the security is losing favour.

The DVR’s index journey began in April last year, when the Nifty introduced it as a 51st component. Following the inclusion, the scrip briefly outperformed the ordinary shares on account of passive inflows.

DVRs are securities with fewer voting rights but higher dividends.

Typically, DVRs trade at a discount to the ordinary shares. At the time of the inclusion, the discount between the Tata Motors

DVR and ordinary shares had narrowed to 25 per cent. Currently, the discount has widened to 45 per cent. Analysts say another key reason why the DVR is losing favour among investors is the lack of dividend payouts from Tata Motors. “

A DVR share of any company can be a good investment option if it is a high dividend payer. That’s not the case with Tata Motors,” says an analyst.